Gold rockets to a 20-year high, takes shine off festive season

Arindam Saha, TNNSep 23, 2005, 01.52AM IST

MUMBAI: Local bullion traders and jewellery buyers are facing the heat generated in the West, as gold prices have scaled a two-decade high. The recent surge in gold prices have nothing to do with the current Indian market scenario, though India is among the top global consumers. Gold prices in the West are now at an 18-year peak.

Hardly any trades are happening in local bullion banks and markets. If the high price of the yellow metal continues unabated beyond 'pitrupaksha', then jewellery demand for forthcoming local festivals and marriages are bound to be hit. With gold prices hitting $473 a troy ounce on Thursday, the local market is shadowing the London spot market price. In Mumbai's Zaveri Bazaar, it crossed Rs 6,820 (including taxes) per 10 gms.

In a normal year, hectic trading starts in the Indian jewellery markets immediately after 'pitrupaksha', which will be over in the first week of October. This time of the year usually witnesses pre-season activities as jewellers and gold dealers start dialogues with bullion banks and other sellers to ensure a steady supply of gold.

Analysts, however, fear that this time the shift is more fundamental and long-term, than the usual cyclical movement due to profit bookings by bulk traders, thus indicating that the price may remain high in the near-term. Already, gold prices are at a peak due to the devastation caused by hurricane 'Katrina' as well as high oil prices.

Local banks are also experiencing a drop in business. K Balasubramanyam, senior manager, Corporation Bank said, "Usually 1,000 kgs of gold is sold on an average a day and it has now come down."

Unlike this year, the yellow metal usually sees hectic buying during this time of the year as bookings for the forthcoming marriage season and major festivals are due.

Chances that gold prices will soften in the coming days are remote, said Bhargava N Vaidya, a bullion analyst. Opinion in the global market is also bullish. JP Morgan has recently revised the expected average yearly gold price upward by 3.7%, to $440 for '05, while the '06 gold price is forecast to be 13% higher than an earlier prediction. The average '06 price is pegged at $472.

However, investment demand for gold has remained unaffected in the local market. "Despite a sluggish retail demand in the last few days, big-time investors are still present in the market," said Amit Modak, a Pune-based bullion trader. As interest rates in the US rose to a new high, people reckon that there could be inflationary pressures and a rise in prices. Gold prices could go up to $480, he said.

The current high price is, however, much less than the all-time high of $820 a troy ounce in '78. For a day in '78, the price shot to 820 before moving south.

On the MCX, gold trading continues unabated, with near-month trading at Rs 6761 per 10 gm. Though many are indulging in brisk speculation to make a fast buck, others are hedging their risks, as 'open interest' indicating that carry-forward trade for physical delivery is also increasing. Small delivery-based contacts are also witnessing reasonable volumes. A Kolkata-based delivery contract traded for just two weeks has done close to Rs 70 crore in the first few hours of trading.